Learning from new business models

Jyoti Banerjee

In the world of business, two companies stand out as representatives of the 20th and 21st centuries. Ford was one of the early innovators, creating the ideas behind mass manufacture and distribution. Cisco, the maker of Internet hardware, is one of those successful upstarts that is redefining how 21st century business will be conducted. Can the not-for-profit sector learn anything from these two contrasting business models?

At the height of its industrial powers, Ford owned a large car assembly facility in Dearborn, Michigan. Fewer people know that Ford owned a shipping company on the Great Lakes and used its own ships to carry raw materials to the plants and cars from them. Or that it owned a mahogany forest in Venezuela which supplied the wood it used in its cars and a rubber plantation in Malaysia to supply its own tyre-making facilities? This was the model for 20th century business: do everything you possibly can on your own and trust nothing to anyone else.

Cisco, by contrast, owns only two of the 40 or so factories around the world that make its gear. When an order comes into Cisco (typically 85 per cent of its orders come in off the Internet), the company usually assigns the order electronically to one of its partners, which is then responsible for making the item and shipping it direct to the customer. All Cisco does is collect the cash. This approach has enabled Cisco, a start-up ten years ago, to become one of the world’s most valuable companies, with a market value that would enable it to buy not just Ford, but GM and Daimler Chrysler as well if it chose to get into car-making.

The 21st century model of business

What’s the difference between Cisco and Ford? More fundamentally, what’s the difference between 20th and 21st century business? The difference is collaboration. In the past it was expensive to collaborate. Ford built a business that reduced the uncertainties of collaboration by owning everything it could itself. But the Internet has brought the costs of collaboration right down.

Think of the new powerhouses: Cisco, PC-maker Dell, online broker Charles Schwab. Each of them is causing serious damage to more traditional competitors by transforming the way they operate. Dell’s competitors, such as Compaq and IBM, make computers for sale through reseller channels. In effect, they make computers for building up stock inventories. Dell makes a computer only when it gets a direct order. As with Cisco, the information from its customer is immediately shared with its partners and suppliers, enabling the entire supply chain to be mobilized on behalf of the customer.

These successful new models are all collaborative, and they are all made possible by the Internet. Many people think of the Internet as a means to send email or buy a book or find information. Or even, in the case of non-profits, as a way of promoting online giving. The Internet is all of that, but more than anything it is a public infrastructure that makes collaboration easy and cheap.

Collaboration for non-profits

What’s the relevance of all this for non-profits? A key point to note is that collaboration has been a strength for non-profits right from their roots. Collaboration was a necessity in order to get around the fact that few non-profits had the resources to own everything Ford style.

Non-profits can look for collaborative opportunities in three different ways. First, investments in technology can often be shared by organizations that are working together, even without any money changing hands. Second, an expensive component of almost any project today is good-quality, timely information. Again, organizations wishing to collaborate can share information resources. A great example of this on a large scale is the human genome study, which is drawing on the information and technology resources of thousands of organizations around the world in order to accomplish something that would be prohibitively expensive for any single organization to carry out.

A third aspect of collaboration is outsourcing: if the work is not core to your organization’s mission, then get somebody else to do it. That way you can focus your limited resources on accomplishing what you set out to do, while achieving a larger mission through working with your partners. Non-profits that fail to collaborate in future may not get devastated in competition the way Dell is beating Compaq. No, they may simply become irrelevant.

Jyoti Banerjee is a specialist in the interaction between technology and business. He is also a trustee of Interserve, a Christian missions partnership organization that is about to celebrate its 150th anniversary. He may be contacted at jbanerjee@attglobal.net

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